the go-to place for practical, quality, technical life insurance support and expertise for financial advisers including claims process management for insurers and industry super funds

An open letter to our regulator and an appeal to insurers

Dear Regulator: Be Careful What You Wish For

We have watched and waited for two weeks and now it’s time for The Risk Store to make comment on the ASIC 498 report and the resulting dialogue and to caution both regulators and insurers. There is a groundswell of reaction arising from 498 findings that could lead to actions and outcomes we could all have stopped and didn’t. This, therefore, is our heartfelt warning of specifically what the ‘decline rates’ conversation could lead to if allowed to snowball in its current direction. If anyone else has recognised the dangers, they are not going public with it. So we are.

No beating about the bush: we are extremely concerned about the very real potential for irreversible damage to the sustainability of the industry, if ASIC hang their regulator’s hat on the publishing of decline rates for a perceived benefit to consumers in their decision-making over which insurer to select. These will not contribute to informed decisions – but that’s not the main worry.

“it is important to acknowledge

that not all claims will be successful”- ASIC

Firstly, it isn’t clear how any randomly selected percentage of declines could be drawn in the sand, by anyone, as a benchmark that has reasonableness or comparability or otherwise. Let alone that amid the noise out there, one fact will be obvious to anyone with industry experience but it is not being acknowledged in media releases and commentary: ‘declines’ as a label encompasses a dozen different reasons why claims are not paid - this detail must be understood to be useful to any audience. And while ASIC do say within the report “…it is important to acknowledge that not all claims will be successful…even though they may not be entitled to payment for a loss not covered by the contract, policyholders can (and do) lodge claims in these circumstances”, their subsequent public statements fail to draw this fact into the open. This means ASIC’s media message is coming across as ‘claimants (all) have a right to be paid’. So media outlets have followed suit and bizarrely forgotten that the key principle of any insurance pricing is that if claims are not assessed and deemed to fit (or not) within set terms and conditions, then premiums cannot be sustained at affordable levels. Why is the industry not calling this out?

Secondly, claims data is ridiculously inconsistent in Australia. Even claims causes, which are generally reported elsewhere by using an international code which our collective industry doesn’t use, are impossible to properly collate here. The Risk Store has experienced that first hand for ten years as we have wrestled with gathering and publishing annual industry claims paid and causes statistics, to the best quality we can muster from what we are given...

It is a rare client who takes up the “best of the best” when it comes to their protection package of life insurance products. After a thorough discovery process, an analysis of the funding needs and appropriate policy ownership structures, the next part of the “estate planning” journey is to work through the affordability strategy — often a dilemma for both adviser and client.

ALL paid members (corporate and individual) have 24/7 access to our email technical helpline service. We try to provide a written email reply within 48 hours. We also have an archive of the most commonly asked questions.